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OTC Bitcoin Trading: How to Keep Whales Happy

Estimated reading: 7 mins

OTC Bitcoin Trading: How to Keep Whales Happy

The Tokyo Whale Strikes

Nobuaki Kobayashi, head attorney for the Mt. Gox trust, has been dubbed the "Tokyo Whale". Between late September 2017 and March 2018, during the wind-down of Mt. Gox, the Trust flooded the Bitcoin and Bitcoin Cash markets with almost NZD$1 billion dollars' worth of coins over two sales events.

Noticing the massive increases in liquidity, many in the wider crypto community started panic selling, causing prices to drop further and further (slippage). Bitcoin investors were not happy with Kobayashi at all. The community expressed their anger on Reddit over this "market flooding" at a time when prices were already under pressure.

Tokyo whale of Mt Gox flooded bitcoin markets causing price crash. This is why we should use OTC crypto trading desks for large volumes.

Many feel that Kobayashi purposefully sold such large amounts at once to spite the Bitcoin network after the failure of Mt. Gox. Of course, this is all hearsay with Kobayashi saying that the decision to sell the digital assets was purely to raise funds for disbursements to creditors.

Whatever the case may be, if you want to buy or sell large amounts of Bitcoin, how can you do so without swinging the entire market? How do you avoid causing an uproar in the cryptosphere?

The answer is simple: use an over-the-counter cryptocurrency trading desk.


What is an OTC Crypto Trading Desk?

What exactly is an OTC trading desk anyway? Over-the-counter or OTC trading is a service used by institutional investors and other high net-worth individuals looking to buy or sell large amounts of cryptocurrency. A "large amount" is a loose term; it's used to describe transactions of $10,000 plus by some, or 25BTC or more by others and everything in between.

Generally speaking, large purchases of crypto don't take place on a traditional crypto exchange to help avoid problems with things like slippage and to increase privacy for the trader. Even a major exchange tends to have highly volatile or even low liquidity. On the other hand, OTC brokers or facilitators act as deep liquidity providers by holding large amounts of crypto themselves, or by connecting buyers to sellers who do.

There are several different OTC service types available such as Bitcoin ATMs, chatrooms, and brokers. We will delve into what these are shortly but first, why do we need OTC services for crypto?


Why Would You use OTC Trading Instead of a Crypto Exchange?

Hedge funds, family offices, institutional investors, private wealth managers, or high net worth individuals tend to place large volume trades. There are several simple reasons to use OTC services as opposed to a cryptocurrency exchange including better prices, faster transactions, and decreased risk (depending on the OTC provider's reputation, obviously).

And this method of trade isn't unique to cryptocurrencies. In fact, the majority of trading within the entire global financial system happens via OTC services. As Circle Research says:

"In traditional markets, more US companies' shares trade OTC…than on the Nasdaq and NYSE combined. Trillions of dollars in bonds, commodities, currencies, derivatives such as the infamous mortgage-backed securities influential during the 2008 financial crisis, and scores of other complex financial instruments trade OTC each year. The derivative OTC markets alone account for $600+ trillion in notional value every year."

OTC Bitcoin Trading vs Crypto Exchanges
OTC Bitcoin Trading vs Crypto Exchanges


1. Price

OTC trading provides the benefit of one, upfront, fixed price for the entire amount of BTC (or other cryptocurrencies) you wish to buy or sell. Conversely, large trades on an exchange are made up of multiple smaller transactions which generally increase in price.

To illustrate this further, a significant trade on Blockchain.info (21/03/18), of 339.85 BTC, required 2,383 different transactions to process the full amount.

Placing large block trades on an exchange can result in the entire market shifting up or down (Remember our Mt. Gox example from earlier?), which may not be in your favour. As a result, the overall cost of the trade is higher because of slippage.

Cryptocurrency Slippage

What is slippage?

Slippage occurs when a cryptocurrency price changes while an order is being fulfilled. It can result in the final price paid or received being different from that which was initially expected. On an exchange, slippage often occurs when a large order is placed, but it can't be filled in one transaction. Instead, the order is split into multiple different transactions due to the liquidity of the digital asset and exchange in question.



Another attractive feature of using an OTC trading desk is that the amount you are charged in fees on each transaction is typically lower than that which you will find on an exchange or from a retailer or broker. Take, for example, our own trading platform. For the retail side of BitPrime, our expected gross spread or fee is 2.9% on each transaction. For the BitPrime OTC desk, this fee ranges from only 1-2% depending on your cumulative annual purchase amount. That equates to a saving of $1,350 for a $150,000 transaction, or nearly $21,000 for a $1,500,000 transaction!

In case you didn't know, the gross spread is the difference between the average price the retailer or broker paid for the digital asset and the price they sell it to you for.


Does the OTC market affect the spot market price of bitcoin?

While it is impossible to know to the exact OTC market size due to the privacy of such trades, Monica Summerville of Tabb Group, a research and consulting firm, estimates that OTC crypto trading may be up to three times the size of the daily trading volume reported by exchanges. At the time of writing, CoinMarketCap has recorded a 24-hour volume of over $239,000,000,000 (NZD).

Now, given that these OTC trades are happening away from the exchange's order books, one would expect prices to remain stable and not be affected by these trades. While this is true directly, there can still be an indirect effect if the news gets out about impending large trades and enough exchange users buy or sell in anticipation of this – again, something which happened with the second giant Mt. Gox sell-off.

Of course, bear in mind that this was a significant movement of crypto from a wallet that was under very close scrutiny by the wider crypto community so it would have been impossible for the trustee in charge of the wallet to have done anything without causing alarm.

All in all, the OTC market does not usually affect the spot market price of bitcoin.


2. Speed

OTC trades can be processed faster as they aren't subject to market liquidity on exchanges. You are merely transacting with the one entity who holds the entire value you require (whether that be fiat if you are selling or crypto if you are buying).

Once again, we can look at what happens on a cryptocurrency exchange when a large trade is placed – it is made up of many smaller ones. Now for our large order to be completed, we are reliant on there being enough smaller ones taking place at the same time. If you've ever placed a limit sell or a limit buy on an exchange, you may have experienced having to wait patiently as your order is slowly filled for the price you set. And if the market shifts while you're waiting, there isn't a lot you can do except twiddle your thumbs or cross your fingers – it could take hours or even days!

Using the BitPrime OTC platform as an example again, the trade happens fast. Funds swap between ours and the traders' account with a three-hour turnaround on weekdays; there's no waiting up to four business days for an international wire transfer to or from NZD either.


3. Fewer counterparty risks

By using a trusted broker, you avoid many of the risks commonly associated with cryptocurrency exchanges. E.g., hacking used to steal funds from exchanges such as the 2014 Mt. Gox attack with over NZD$600 million lost.

A counterparty or default risk is also the risk that the other party involved doesn't pay or settle as was expected. With certain types of OTC trade, this risk should be mitigated by either the automation, as in the case with an ATM, or by the broker you use having insurance or other agreements in place. Other methods of block trades, such as using chatrooms, require you to assess and lessen the risk yourself.



How can you do OTC Bitcoin Trading?

So, how does OTC trading work? As mentioned earlier, there are several different types of OTC trade, and each follows three basic steps.

  • Firstly, find a counterparty to trade with.
  • Secondly, negotiate the details of the trade.
  • Lastly, complete the trade.


Bitcoin ATMs

Bitcoin ATMs allow users to convert fiat into crypto or vice versa very easily. There are many crypto ATM manufacturers with the biggest two being Genesis Coin and General Bytes.

In New Zealand, there was one Bitcoin ATM in Auckland and one in Dunedin. Unfortunately, it seems these are no longer available. When they were here, transactions on those machines were capped at a modest NZD6000 per day.

Despite the fact that New Zealand no longer has one, the rate of installation of these machines is still growing worldwide as seen in the below chart from Coin ATM Radar.

crypto ATM installations growth

Should you wish to, you can read more about the 10,000+ ATMs available worldwide on Coin ATM Radar's site.

Satoshi1 Bitcoin ATM
The Satoshi1 Bitcoin ATM by Genesis Coin.



The first major trade of BTC occurred on the Freenode IRC (Internet Relay Chat) chatroom #bitcoin-otc. This form of OTC trading is more suited for advanced users as all interactions take place via Gribble bot.

Gribble bot uses commands to enter orders e.g. ;;buy 100 BTC at "0.9 * {bitstamplast}" PPUSD . There is no automatic system in place to match buyers and sellers.

Furthermore, by trading in this manner, you must negotiate with the counterparty directly. This directness means you have to ascertain the level of risk for trading with a particular party yourself.



An OTC broker may charge you a fixed fee to negotiate the terms of the trade on your behalf. This type of broker is known as an inter-dealer broker. Alternatively, a broker may act as the counterparty, providing liquidity for the trade themselves. This type is known as "principal" OTC trading, and the fee charged is to cover the broker's risk safely.

In essence, both types of broker take out the hard work involved with vetting counterparties and monitoring exchange fluctuation. Also, a broker makes the transaction more private as only involved parties are aware of the trade at the time.

Learn more about the BitPrime OTC desk here.


Why OTC Crypto Trading Desks are Good for the Entire Crypto Community

Over-the-counter Bitcoin trading enables the movers and shakers of the cryptoverse to quietly and calmly conduct their business. It prevents the so-called "whales" from causing tidal waves of volatility in an already surging ocean. With large volume trades happening off exchanges, it allows markets to tick along nicely and minimises panicked trading decisions in the crypto community.

In conclusion, OTC trading benefits everyone in the long run by preventing market slippage while providing the best prices overall.


What are your thoughts on OTC Bitcoin trading in New Zealand? Let us know in the comments below.


Disclaimer: The above references an opinion and is for informational purposes only. It is not intended as personalised financial or investment advice. The opinions expressed by the author do not represent the opinion of BitPrime.

Last updated: 17/09/2020


2 thoughts on “OTC Bitcoin Trading: How to Keep Whales Happy”

  1. Not a fan of Wall Street or other big whales in the world being able to do it this way. If value is to come into the market, it seems it must come in via the small investors. Once again it is the school of minnows that will be feeding the whales.
    If the market cap is increasing but not the price, wouldn’t that suggest they are buying directly off the miners??

    • Hi Richard,

      You raise a very interesting point.
      We can’t currently see the total value, can we? I don’t know if this is likely to ever change either?
      I guess the lesson I personally take from it is to just keep in mind that the values we see in the markets are only representative of a portion of the whole story.
      You may be right about some big players buying directly off miners. That’s a point I hadn’t really considered!


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